BNPL: the 4-installment ledger
Klarna's 'pay in 4' is one purchase, five accounting events, and zero interest charged.
By Solomon Ajayi · Free to read, no signup
User buys ₦40,000 of goods from a merchant. Your BNPL product splits payment into four ₦10,000 installments: first one at checkout, three more every two weeks. You pay the merchant ₦39,000 upfront (you took a 2.5% fee). You collect ₦10,000 from the user now, then ₦10,000 every 14 days for the next 42 days. Your accounting needs to reflect: a receivable from the user that DECREASES with each installment, a payable to the merchant that goes to ZERO when you fund them, your gross revenue (the fee), AND your float exposure (the unpaid ₦30,000). This lesson walks the first three of the five events.
Buy Now Pay Later feels like a payment product to the user and to most engineers, but on the books it is a short-duration loan wearing a payment-product costume. The moment you fund the merchant, you have paid out the full purchase price and the user owes you the unpaid balance. That balance is a receivable, which means your loan book grew even though the user is convinced they did not borrow anything.
A single checkout is really several accounting events spread across weeks. At checkout you book the whole purchase: cash in for the first installment, a receivable for the rest, a payable to the merchant net of your fee, and your fee as revenue. The next day you fund the merchant and the payable goes to zero. Then each installment that lands shrinks the receivable until it reaches zero and your net cash turns positive by exactly your fee.
The number that bites is float. You fund the merchant ₦39,000 on day one but only hold ₦10,000 of the user's money, so your cash position goes deeply negative and stays there until the later installments arrive. Across thousands of concurrent loans, that float exposure peaks weeks out and is real capital you have to source somewhere. And because it is a loan, default risk is real too: BNPL default rates run a few percent, so you need DPD tracking exactly like a lending product.
Worked example, step by step
Checkout: book the full ₦40,000 purchase + first installment
User checks out. You commit to paying the merchant ₦39,000 (after your 2.5% fee). You collect the first ₦10,000 installment from the user via card. The remaining ₦30,000 is what you'll collect over the next 6 weeks.
| Account | Debit | Credit |
|---|---|---|
| Bank Account (1200) | ₦10,000.00 | |
| BNPL User Receivable (1550) | ₦30,000.00 | |
| Merchant Payable (2200) | ₦39,000.00 | |
| BNPL Merchant Fee Revenue (4300) | ₦1,000.00 |
Bank Account UP ₦10,000 (first installment cash in, debit). BNPL User Receivable UP ₦30,000 (what user still owes you, debit). Merchant Payable UP ₦39,000 (what you owe the merchant net of fee, credit). BNPL Merchant Fee Revenue UP ₦1,000 (your 2.5% cut, credit). Four lines, all balanced: 10,000 + 30,000 = 39,000 + 1,000.
T+1: pay the merchant
Standard BNPL ops: fund the merchant the next business day. ₦39,000 leaves your bank, the Merchant Payable clears.
| Account | Debit | Credit |
|---|---|---|
| Merchant Payable (2200) | ₦39,000.00 | |
| Bank Account (1200) | ₦39,000.00 |
Merchant Payable DOWN ₦39,000 (debit). Bank Account DOWN ₦39,000 (credit). Net cash position for this purchase so far: -₦29,000 (you funded ₦39,000, collected ₦10,000). The other three installments will eventually bring you back to +₦1,000 net.
Day 14: user pays installment 2 of 4
User's card auto-charges ₦10,000. Bank up, BNPL receivable down. Same shape will repeat at day 28 and day 42.
| Account | Debit | Credit |
|---|---|---|
| Bank Account (1200) | ₦10,000.00 | |
| BNPL User Receivable (1550) | ₦10,000.00 |
Bank Account UP ₦10,000 (debit). BNPL User Receivable DOWN ₦10,000 (credit). Receivable now stands at ₦20,000. After installments 3 and 4, it lands at ₦0 and your net cash is positive by your ₦1,000 fee.
Takeaway
BNPL is a short-duration loan dressed as a payment product. The full purchase amount is BOOKED as a receivable from the user the moment the merchant gets funded, your loan book grows even though the user thinks they 'didn't borrow.' Default risk is real (typical BNPL default rates run 2-6%); you need DPD tracking just like in lesson 51. Your float exposure peaks around day 14-28 when most of the user's debt is still outstanding but the merchant has been paid. Underestimate that float and you'll need an emergency revolver from your sponsor bank. This is why BNPL providers blew up in 2022-2023.
Practice this on a real ledger
Reading is half of it. Open this lesson in the lab to post the entries yourself against a real Postgres-backed double-entry ledger, with the validation on. Free, your sandbox is yours.